Exam 1 Money banking and financial securities

During the past 30 years, reversal of some of the trends that have reshaped the financial industry are

- Changes in regulatory barriers - Financial innovation changes - Changes in Technology

The major suppliers of securities for capital markets are

- Corporations - governments

Financial institutions encourage investment by savers by offering investments in _____ , ______and _______

- Annuities - pension funds - life insurance

When a U.S. corporation or investor receives currency cash flows, the U.S. dollar value of those cash flows will _______ if the foreign currency ________ against the U.S dollar

- increase;appreciate -decrease;depreciation

From 1992 through 2015, U.S. investors holdings of foreign financial market debt securities increased by a factor of about

10x

When a financial institution accepts short-term deposits from investors and uses those funds to issue long-term loans to borrowers, they are engaging in

Asset transformation

The Volcker Rule forbids depository institutions from engaging in what type of risky trading activity?

Buying or selling derivatives for the banks own account

The major supplier of funds for secondary markets are

Households

The first-time issue of stock by a corporation going public is called

Initial public offering IPO

All financial institutions are exposed to _____ and _____ risk in the daily production of their services.

Technology;operational

Which of the following is NOT specified in the derivative security contract?

The final purpose for which the asset exchanged will be used

In terms of severity, the financial crisis of 2008 is generally considered to be

The worst recession in the U.S. since the great depression

True or False: The originate and distribute model contributed to the financial crisis because it allowed FI's to issue risky mortgages known that they could sell them before they defaulted

True

Two important characteristics of capital market securities are

- Maturity greater than one year - Wider price fluctuations than MM securities

In a world without financial institutions where suppliers provided funds directly to users, suppliers of funds would face three types of risks/costs. These are

- Monitoring cost - liquidity cost - price risk

The decline of the share of assets held by commercial banks between 1948 and 2016 is due to

- Strict capital regulations - Regulations imposed during the financial crisis - low interest rates

Two of the most important payment services provided by financial institutions to the economy are _______ and ________

- check clearing - wire transfers

In the "originate and hold" model, financial institutions are exposed to risks, including which of the following

- credit risk -liquidity risk - interest rate risk

The financial institutions that experienced a dramatic increase in their share of total FI assets during the period 1948 - 2016 are

- investment companies - securities broker/dealers - pension funds

In primary markets, the users of funds are frequently

Corporations needing funds for new projects

The risk that financial institutions face when doing business in foreign countries is called

Country or sovereign risk

When a financial institution hires employees to fund users on behalf of fund providers. they are said to be acting as

Delegated monitors

Financial institutions frequently pool small deposits from individual savers and invest the funds in large denomination securities. This is called

Denomination intermediation

In primary markets, fund users raise new capital through the sale of

Financial securities

The risk that the value of a foreign investment may change due to appreciation or depreciation of the foreign currency is

Foreign exchange risk

The risk that a financial institution will not have enough capital reserves to offset a sudden loss is called

Insolvency risk

The mismatch of maturities between liabilities and assets of financial institutions exposes them to

Interest rate risk

The preference of fund suppliers to choose to hold cash versus investing in long-term securities increases the cost of long-term borrowing. This cost can be best described as

Liquidity cost

The passage of Securities Act of 1934 designated that the _____ would be the regulator of financial markets and exchanges in the U.S.

Securities and Exchange Commission (SEC)

In secondary market transactions, funds are exchange with the help of _____ acting as an intermediary between the buyer and seller of an instrument

Securities brokers

The term "Brexit" refers to

The decision of the people of the United Kingdom to leave the European Union after 43 years

True or false: in the U.S., most money market securities are traded "over the counter" rather than on organized exchanges

True

As a result of increased globalization, movements in foreign financial markets now have _____ impact on U.S. financial markets

a much greater

A significant component of the money supply that is under the supervision of financial institution is

deposits at commercial banks and thrifts

A financial institution's average cost of monitoring is lower than the individual investor's due to

economies of scale

Traditional depository institutions find it difficult to compete with other financial institutions due to

higher costs due to regulation

Maturity intermediation may expose financial institutions to

interest rate risk

Secondary markets offer buyers of securities the ability to convert them to cash quickly at fair market value, and characteristics known as _____

liquidity

A financial institutions average cost of monitoring fund users is _________ than the individual investors cost

lower

IPO's are issued on the ______ and facilitated by ______

primary markets ; investment banks

In the U.S. savings banks and savings associations have been directed to provide financing primarily for

residential mortgages